Peso rises on US Fed Reserve’s near-zero interest rate plan

MANILA, Philippines—The peso inched up on Tuesday as the reported intention of the US Federal Reserve to keep its interest rate at near zero for quite some time lifted appetite for higher-yielding instruments, particularly those from emerging markets like the Philippines.

The local currency closed at 42.915 against the US dollar on the second trading day of the week, up by 14.5 centavos from the previous day’s finish of 43.06:$1.

Intraday high hit 42.88:$1, while intraday low settled at 43:$1. Volume of trade amounted to $812.18 million from $949.5 million previously.

The appreciation of the peso came after the release of a statement from US Fed Chairman Ben Bernanke that the world’s biggest economy needed further stimulus to ensure faster recovery.

Traders said fund owners viewed the statement as an indication that the Fed would keep its interest rate at near zero, thereby making yield-seeking investors prefer emerging market assets.

Extremely low interest rates are meant to spur demand for loans, which in turn help fuel consumption and investments. However, low rates make securities less attractive.

Traders said that barring any disruption of the favorable growth rates of Asian economies, a near-zero interest rate in the United States would make foreign fund owners prefer investing in emerging-market assets.